Company: Apple Inc.

Here, you must determine what the optimum capital structure is for your firm. A sample spreadsheet is provided where you may input the data that you have already found for the WACC. The spreadsheet will use Hamadas Equation to recalculate the levered betas based on the weights that you choose.

NOTE: You cannot just assume that your weights and your bond values are the same as the sample. You must choose the appropriate weights first based on the market value weights your firm currently has. Then, you must choose appropriate bond rates as you increase or decrease the weight for debt.

You must explain and reference how you chose your numbers and attach a copy of the spreadsheet.

Note that the spreadsheet has all the calculations for the WACC on the top portion, but Hamadas Equation only uses the CAPM to refigure the levered beta and the new WACC for that beta.

Spreasheet below: Feel free to edit spreedsheet if need be.

Tool Kit for Capital Structure Decisions

Optimum Capital Structure Problem (Millions of Dollars Except Per Share Data)

NUMBERS IN RED MUST BE INPUTTED, NUMBERS IN BLUE ARE CALCULATED

Input Data (Millions Except Per Share Data)

Data From:

Tax rate

26%

Debt (D)

$757,470,000.00

Number of shares (n)

900,000,000

Stock price per share (P)

$847.00

Capital Structure (Millions Except Per Share Data)

Market value of equity (S = P n)

$762,300,000,000.00

Total value (V = D + S)

$763,057,470,000.00

Percent financed with debt (w_d = D/V)

0.1%

Percent financed with stock (w_s = S/V)

99.9%

Cost of Capital

Data From

Cost of debt (r_d)

3.26%

Beta (b)

1.14

Risk-free rate (r_RF)

2.87%

Market risk premium (RP_M)

6.54%

Cost of equity (r_s = r_RF + b RP_M )

10.31%

Cost of Equity from Dividend Growth Model

Future Dividend Growth Rate

10.60%

Last Dividend $

0.0345

Share Price $ (4/5/13)

$ 12.81

Cost of Equity from Dividend Growth Model

10.90%

Cost of Equity from Bond Plus Markup

Cost of debt

3.26%

Risk Markup

7.20%

Cost of Equity from Bond Plus Markup

10.46%

Average rs

10.6%

WACC

10.55%